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Issues Involved:
1. Whether the Tribunal was justified in allowing the deduction of the amount paid by the assessee as a contribution to the Chief Minister's Drought Relief Fund u/s 37(1) of the Income-tax Act, 1961. Summary: Issue 1: Justification of Deduction u/s 37(1) The High Court of Madhya Pradesh addressed the question of whether the Tribunal was justified in allowing the deduction of the amount paid by the assessee, a registered partnership firm, to the Chief Minister's Drought Relief Fund as an admissible deduction u/s 37(1) of the Income-tax Act, 1961. The relevant assessment year was 1969-70. The Tribunal had held that the donations qualified for deduction under s. 37(1) as they were in the nature of expenditure incurred wholly and exclusively for the purpose of the business of the assessee. The High Court examined the facts and found that the Government of Madhya Pradesh had issued an order controlling the export of foodgrains due to famine conditions. The Chief Minister had appealed to the trading community to contribute to the Drought Relief Fund, suggesting that the merchants would earn rich profits from the export permits granted by the government. The Tribunal found that the donations were voluntary but had a direct bearing and nexus with the business of the assessee. The High Court agreed, stating that the donations were made as a matter of commercial expediency to facilitate obtaining permits necessary for carrying on the export trade. The expenditure had a direct connection with the permits, and the donations were calculated based on the quantity of goods exported. The High Court noted that the expression "for the purposes of the business" in s. 37(1) is wider in scope than "for the purposes of earning profits" and can include acts incidental to the carrying on of a business. The Court cited various precedents, including CIT v. Malayalam Plantations Ltd. and British Insulated and Helsby Cables Ltd. v. Atherton, to support the view that voluntary payments made on grounds of commercial expediency can be considered as expenditure wholly and exclusively for the purposes of the business. The Court rejected the revenue's argument that the donations were not exclusively for business and were for dual purposes of business and charity. It held that the primary object behind the donations was to obtain permits for business, and the resulting benefit to third parties did not disqualify the expenditure from being deductible under s. 37(1). The High Court also addressed the case of Addl. CIT v. Badrinarayan Shrinarayan Akodiya, where a Division Bench had come to a contrary conclusion on similar facts. The High Court found that the Division Bench had incorrectly appreciated the findings of the Tribunal and did not apply the correct principles. The High Court, therefore, differed from the view taken in Akodiya's case. Conclusion: The High Court answered the question referred by the Tribunal in the affirmative, holding that the Tribunal was justified in allowing the deduction of the amount paid by the assessee as a contribution to the Chief Minister's Drought Relief Fund u/s 37(1) of the Income-tax Act, 1961. There was no order as to costs.
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